Chapter 10 Mini-Case Accounts Receivable Tests of Details

In this mini-case you will complete the test of details on accounts receivable for the 2019 audit of EarthWear Clothiers, Inc. The principal test of detail involves sending "confirmations" or letters to customers so that they can confirm that they owe EarthWear the reported balance. All six customer accounts receivable balances exceeding $100,000 were targeted for testing. These six balances, aggregated total of $921,000, were confirmed without exceptions. The remaining accounts are of similar size and total $7,722,000 and will be tested via audit sampling. Inputs for the sample size determination were, Desired Confidence Level--95%, Tolerable Misstatement--$600,000, and Expected Misstatement--$154,440. Based on these inputs, 67 accounts receivable balances were selected for confirmation requests. The first 63 accounts receivable confirmations have already been reviewed by other staff members and no errors have been found. The remaining four confirmations require your review as they were returned with notes from customers indicating a potential misstatement. Please note that legitimate timing differences do not result in misstatements.

Please help with the statistical evaluation portion and evaluation method comparison.

Work Paper 10-1 EARTHWEAR CLOTHIERS Evaluation of A/R Confirmations December 31, 2019 Results of A/R Confirmations A/R Balance per clients' records A/R Balance per Customer Difference per Customer Amount of Misstatement Customer ID Reason(s) for Difference (i.e., timing difference, transposition error, cut-off error, mistake, etc.) transposition error Customer Name 652-54310 Red Star Health Group $ 12,365 $ 12356 $ 91 $ Al timing difference 210-38725 Museum of Flight $ 14,235 $ 0 $ 14235 $ cut-off error 254-62418 Summit Hills Country Club $ 24,362 $ 21520 $ 2842 $ 179-26343 Central States Hotels $ balance was missing a credit memo 18,642 $ 15642 $ 3000 $ 3000 $ 0 $ 0 63 additional items $ Total Dollar Amount of Items in Sample $ 880,560 950, 164 $ 880,560 $ 930078 $ 20086 $ Net misstatement Total Dollar Amount of Items in Sampling Population $ 7,722,000 Nonstatistical Evaluation of Errors (Round your percentage answers for "Ratio of Misstatements" to 4 decimal places. Round all other answers to the nearest whole dollar. Leave no cell blank - Be sure to enter "O" wherever required.) Stratum Book Value of Stratum Book Value of Sample Evaluation of Test Results >$100,000 $ 921,000 $100,000 $ 921,000